Listed for $3.55 million last October, the asking price for the completely remodeled Noe Valley home at 439 Clipper Street was subsequently reduced to $3.25 million, at which point the listing was updated to tout the ‘best priced home in Noe Valley’ and to warn that the ‘seller [would be] moving-in in January 2016 if not sold.’

Well, I got hit by a car about two years ago, and it did a number on my rear left leg. The scar started to bother me a couple of months ago, and now my owner has me wearing one of those embarrassing “no-chew” plastic cones around my neck. A lot of people thought that a three-legged dachshund couldn’t keep up a good internet comment game, but I’ve figured out how to type with both front paws on the laptop when no one’s looking. Oh wait – shh- I hear someone at the door…

I agree that a sale at the new asking would be a perfectly fine result. However, with 8 years of holding costs and property taxes, selling costs, and transfer taxes (and capital gains taxes), the result is certainly well short of spectacular. They may have done better, with way fewer headaches, with a simple S&P index fund. Now, I’m assuming from the “unoccupied” note in the entry that they never lived in the place. If they did live here, the result is much better.

For comparison, our neighbors bought their place in late 2013 and just sold it for a $500,000 gain (~ 35% in two years on a leveraged buy), and they lived in the place. Now that is a nice outcome. The long, long holding time for this Clipper place really removes it from the “great deal” category. So, yes, “could be worse.” But it’s not too tough to realize about a 5% annual gain, which doesn’t sound nearly as impressive as 750k-1mm. This result is nothing to write home about.

If you want to consider the tax implications, please state whether the sellers will execute a 1031 exchange.

Please note that 1031 exchanges are not available to your S&P 500 comparison.

1031 exchanges are also not available to homeowners.

Please state your estimate of the contribution of the payoff on the investor’s overall capital market portfolio. Vs. the S&P? What if they are already long $10mm in the S&P. Did this investment project diversify the outcome under the CAPM model?

What was the expected risk/return variance for the project? Do you think this is at the efficient frontier of the capital markets?

Do any of these things matter in your investment portfolio?

What contribution to the developer’s ongoing business did the work provided to the contractor mean?

Will he/she get better treatment if this represented new or repeat business?

Well, if you are looking for an analysis that is based on all those factors, including whether tax rates will rise or fall, I’m afraid I can’t offer you any help. I’m just an M&A lawyer. You might be better off consulting a crystallomancer.

“It seems as if your initial 8 years holding costs post, with its 5% annual gain takeaway, was very much a knee jerk criticism.”

Dismissing holding/opportunity costs for an 8 year hold during a time period where the S&P was up 40+% (more even if you include dividend re-investment) is a knee jerk reaction as well. But more importantly, knee jerk or not, is it right to dismiss this?

It’s one thing to make the argument that ‘Common sense would tell you X, but my detailed calculations show Y’, but she hasn’t actually done the detailed calculations to show anything.

I think making estimates of Internal Rates of Return is a perilous exercise with this many variables, hence I limited my analysis to (Sales Price – (Cost + Cap Ex)) = @$750K-1mm, which “Could be worse.”

I believe I am alone in frequently offering estimated P&L calculations in this comment section.

My original point was that we get snarky about real estate agents with priced priced too low, and we get snarky with real estate agents with prices too high. “Whatever,” I suppose. Agents keep taking 5-6% out of the trade and they can probably stomach the dog/agent comparisons people seem willing to sprinkle down from on high.

There is more to it than that. The problem is that (Sales Price – (Cost + Cap Ex)) = @$750K-1mm does not provide anything meaningful, at best, and is outright misleading at worst. (esp. when the “Cap Ex” number was just a wild guess).

A more extreme example illustrates this point. One buys a place for $10mm, puts $1mm in renovations, and then sells 8 years later for $12mm. One could say that (Sales Price – (Cost + Cap Ex)) = printing 1mm in profits(!!!). But that, of course, would be incomplete and inaccurate. There are also the details of all the other costs that are left out – property taxes for 8 years, buying costs, selling costs, insurance, maintenance, transfer taxes. And even if those were all $0, a 10% gain after 8 years is pretty unimpressive, just a little better than 1% a year.

Here, we simply don’t know all those holding costs. Nor do we know what was financed or at what rate. So all we can do is make some assumptions and use some shorthand (and then, of course, anyone can criticize those assumptions and shorthand – easiest thing in the world to do). But the one thing that is not fair at all is to simply dismiss all those real costs as an insignificant quibble.

This is roughly equivalent to a 16.49% IRR. Good or bad trade? I’ll take 16.5% compounded any day of the week.

Maybe Greg Fulford can chime in with more details. He’s listed a lot of these ‘Property Brothers’ Vanguard flips in the Richmond. Maybe they are all from the same seller.

Who knows if they can sell it. As I recall, this is the house with the door-to-nowhere off the kitchen, which is a very weird choice IMHO. I think they would be better served to frame in a tall operable window and enclose the space.

Apples to oranges. In addition to just guessing on your numbers, you’re comparing a leveraged real estate investment with an un-leveraged stock market investment. May as well assume they put $0 down and had an infinite return.

I DIDN’T START THE S&P 500 COMPARISON BUT I DARN WELL PLAN TO FINISH IT!!!

You can lever your SPY holdings too, by the way I just didn’t want to include that because then you would have to include the margin call/forced sale when the index fell 40% between Feb 08 and March 09. Makes the house look even better…

You’ve gone from a 20.45% IRR to 16.5% to 15%. All still with aggressive leverage assumptions. More than 25% at risk from the owner and soon you’ll be into the mid single digits. Printing less and less as we work through reality.

I don’t get the 8 year hold. In that sense I assume this was an investment and 5%/year over 8 years could have been matched in the market.

Its a different world if one intended to live there. 5% is a reasonable appreciation rate for homes. its actually a bit higher than average.

SF is unique and the 35% two year gain your neighbor experienced was their luck and not a sustainable level of appreciation over time. Was it an investment?

A neighbor of mine moved in in 2013. Bought the home as a home to live in. Wife became pregnant with twins last year and they wanted to move to a larger home with a yard and a more kid-friendly city. They sold at the right time. Gaining 25% in 2 years. And were able to buy a nice place in Lafayette..

Our friends also moved to the burbs after having one baby during that 2-year period with another on the way. The age-old SF story – moved away when kids entered the picture so they could have a lawn, two-car garage, and better public schools.

That big gain for them was just a complete windfall. They didn’t anticipate it when they bought in 2013, and they didn’t expect that much when they sold.

And I agree that 5% appreciation a year on a home you live in is just fine. But certainly nothing to write home about after all the taxes and selling costs.

I only really stepped in because I felt he/she was being a little to prickly towards you.

I suppose the whole point of being ‘anon’ is that what really matters is the content, not who’s saying it. And after all, it’s not as if your legal name is ‘soccermom’? The difference between anonymity and pseudonymity is slight in my book.

The Vanguard people seem to have a pretty good playbook down for their flips. There seems to be a similarity of finish choices for their projects. This house has the same front door as the Clipper House, for example.

It will be interesting to see if they get close to list to the house on 24th Ave. Property Brothers, sure, but people keep buying them…

I just love how threats (warnings) from the seller is a desperate attempt to tell some over moneyed buyer to get this Ikea inspired home before it’s too late. It’s like selling a cheap handbag on QVC: “Only 17 remaining.”

And I can’t wait to see who’s the first one to fall on that friendly, sharp edged glass handrail in the entry. Will it be the housewife stumbling home from Novy after 6 glasses of wine in the afternoon, or will it be the Dowager Countess as she trips on her cane?

This description from the listing is hilarious: “Magnificent Master Bedroom…Three additional guest bedrooms” San Francisco has just given up on families living here, even wealthy ones that can afford $3M houses.